Compound Interest Calculator - Monthly Compounding
Monthly compounding gives slightly better returns than annual compounding. Rs 1 lakh at 12% per annum with monthly compounding for 5 years = Rs 1.82 lakh (effective rate 12.68%). Annual compounding at 12% gives Rs 1.76 lakh. The difference grows with time - over 20 years: Rs 9.85 lakh (monthly) vs Rs 9.65 lakh (annual) on Rs 1 lakh.
Total Amount
₹1,64,531
Interest Earned
₹64,531
| Year | Interest Earned | Total Amount |
|---|---|---|
| 1 | ₹10,471 | ₹1,10,471 |
| 2 | ₹22,039 | ₹1,22,039 |
| 3 | ₹34,818 | ₹1,34,818 |
| 4 | ₹48,935 | ₹1,48,935 |
| 5 | ₹64,531 | ₹1,64,531 |
What is the Compound Interest?
Compound interest is interest earned on both the original principal and the accumulated interest from previous periods. Albert Einstein reportedly called it the eighth wonder of the world. The more frequently interest compounds, the faster your money grows.
Formula
A = P × (1 + r/n)^(n × t)- P
- = Principal amount
- r
- = Annual interest rate (decimal)
- n
- = Compounding periods per year
- t
- = Time in years
How to use the Compound Interest
- 1
Enter the principal amount
This is your starting investment or loan amount.
- 2
Enter the annual interest rate
Use the stated annual rate from your bank or investment product.
- 3
Choose the compounding frequency
Annual, half-yearly, quarterly, monthly, or daily. Most Indian FDs use quarterly.
- 4
Enter the time period in years
The longer the period, the more dramatic the compounding effect.
- 5
Review the growth breakdown
The calculator shows the final amount, total interest earned, and a year-by-year growth table.
Frequently asked questions
What is the difference between simple and compound interest?
Simple interest is calculated only on the original principal — you earn the same amount every year. Compound interest is calculated on principal plus accumulated interest, so each year you earn more than the last. Over long periods, the difference is dramatic: ₹1 lakh at 10% for 20 years is ₹3 lakh simple vs ₹6.7 lakh compound.
How often should interest compound for maximum growth?
More frequent compounding gives slightly higher returns, but the difference between monthly and daily compounding is tiny. At 10% annual rate on ₹1 lakh for 10 years: annual = ₹2.59 lakh, quarterly = ₹2.68 lakh, monthly = ₹2.71 lakh, daily = ₹2.72 lakh. Focus on the rate and duration, not the compounding frequency.
What is the rule of 72?
The rule of 72 is a quick mental shortcut: divide 72 by the annual return to estimate how many years it takes to double your money. At 6% it takes 12 years, at 8% it takes 9 years, at 12% it takes 6 years. The rule is remarkably accurate for rates between 4% and 15%.
Do Indian FDs use simple or compound interest?
Most Indian bank FDs use compound interest, typically compounded quarterly. Tax-saver FDs, cumulative FDs, and most retail FDs compound quarterly. Non-cumulative FDs pay out interest periodically (monthly or quarterly), so the compounding benefit only applies if you reinvest the payouts.
Is compound interest taxable in India?
Yes. Interest income from FDs, savings accounts, and most debt instruments is taxed at your income tax slab rate as "Income from Other Sources". Equity returns are treated differently (LTCG at 12.5% above ₹1.25 lakh, STCG at 20%). Tax is deducted at source (TDS) by the bank at 10% if interest exceeds ₹40,000/year (₹50,000 for seniors).
Sources
Weekly Indian rate update
RBI repo, top FD rates, tax deadlines. Free. No spam.
Calculated with CalcCrack
Common questions about Compound Interest Calculator - Monthly Compounding
What is the effective annual rate (EAR) for 12% monthly compounding?
EAR = (1 + 0.12/12)^12 - 1 = 1.01^12 - 1 = 12.68%. This means 12% monthly compounding is equivalent to 12.68% annual compounding. Always compare investments using EAR, not nominal rates, when compounding frequencies differ. A 12% monthly compounded loan costs more than a 12.5% annually compounded loan.
Which bank accounts use monthly vs quarterly compounding?
Most Indian bank savings accounts pay interest quarterly (March, June, September, December). Home and personal loans use monthly reducing balance. Fixed deposits typically use quarterly compounding. SEBI mandates that banks clearly state effective annual yield for FDs. When comparing FD rates, always check the compounding frequency - it changes the effective rate.
How does daily compounding compare to monthly?
Daily compounding vs monthly: on Rs 1 lakh at 12% for 5 years: daily = Rs 1.8220 lakh, monthly = Rs 1.8194 lakh, quarterly = Rs 1.8061 lakh, annual = Rs 1.7623 lakh. The difference between daily and monthly compounding is tiny (Rs 260 on Rs 1 lakh over 5 years). Choose based on rate, not compounding frequency alone.